A creditor of a company can make an application to the court for orders winding up the company if it is insolvent. The most common basis for such an application is that the company has failed to comply with a Creditor’s Statutory Demand and is therefore, presumed to be insolvent. Please refer to our publication What is a Creditor’s Statutory Demand and How to Use It for more information about that process.
The creditor who served the Creditor’s Statutory Demand may rely on that presumption of insolvency for a period of 3 months as the basis for an application to the court for orders to wind up the company. When the creditor makes such an application they are referred to as the “Petitioning Creditor”. The effect of the legal presumption is that the court must presume, subject to evidence to the contrary, that the company is insolvent and it should be wound up.
The documents to be prepared in order to be successful in a winding up application are very technical in nature. To the inexperienced, it can be very easy to miss a step or not attach all required documentation, if that happens, the application will fail.
Both the Federal Court of Australia and the Supreme Court of Queensland have jurisdiction to make winding up orders. The key order is the appointment of a liquidator over the company.
The liquidator’s powers are far-reaching and aimed at identifying, recovering and selling assets of the company in order to distribute the money received from such sale (or liquidation) of those assets amongst all company creditors. It is usual for the Petitioning Creditor to be awarded its costs of applying for those orders, but the Petitioning Creditor’s debt itself is usually unsecured and therefore falls behind secured creditors in the list of priority in terms of being paid from the proceeds of the liquidation.
There can be far reaching consequences for directors of wound up companies, particularly those who hold a QBCC license.
Our next publication in this series, Action Required If You Receive A Creditor’s Statutory Demand (“CSD”) outlines the options to be taken if your company is served with a Creditor’s Statutory Demand.
If you have received a Creditor’s Statutory Demand or have been served with a winding up application, we encourage you to contact us immediately as there are tight timeframes, the missing of which could have extremely adverse effects.